Things to Avoid Before Bankruptcy: Item 7 – Recent Debt Run-up

Credit Card Debt

By Dave Kelly, Minnesota bankruptcy attorney

This is the last in my series of articles about the top seven things that in my opinion you should avoid doing prior to filing a Chapter 7 or Chapter 13 bankruptcy. My list is not exclusive. There are lots of other things to be avoided. On one web page I saw a list of 33 things to avoid. All I am saying is that this list is my top seven. Others may disagree on my ranking of these.

Why is Debt Run-up Before Bankruptcy a Problem?

The reason you should avoid running up debt right before filing a bankruptcy is that doing so may result in an objection to your discharge from one of the creditors. Typically this would not be an objection to your entire bankruptcy case, but just an objection to the one particular debt owing to that particular creditor. The larger the debt and the closer to the filing date of the bankruptcy it was incurred, the greater the risk.

The creditor will review the account and use the history of the account to try and prove that you had no intent of paying the debt at the time you ran it up. If you had no intent to pay when you incurred the debt, the creditor can object on the grounds of false pretenses and fraud. The evidence that the creditor will use will usually be entirely circumstantial . Basically they put together their case and ask the judge “what’s this look like to you?” Often it can be pretty obvious, other times not.

Worse if for Luxury Good or Services

The creditor’s case is always stronger if the debt is for luxury goods and services, especially if the purchases spike right before the bankruptcy is filed. When somebody who hardly ever goes farther then Duluth suddenly decides they need a trip to Europe, it looks suspicious. Expensive restaurants, large purchases of alcohol, spas and pedicures don’t look so good either. On the opposite end of the spectrum is medical expense. People usually don’t have control of medical costs, and the medical providers almost never object.

What the Law Presumes

Ordinarily the creditor has the burden of proof when they file an objection to discharge. This means that the creditor has to prove their case and the debtor does not have to necessarily prove anything. The bankruptcy statute has two situations, however, where certain presumptions shift the burden of proof to the debtor. Here they are:

1.  Any consumer debt for goods and services owed to a single creditor in excess of $725 incurred within 90 days of filing is presumed to be for luxury items. With the proper evidence in your favor, the presumption can be rebutted; but it’s best just to wait so you don’t have to go through a potential objection from the creditor.

2.  Cash advances in excess of $1,000 made within 70 days of filing are presumed non-dischargeable. Again, if this has happened it may be best to wait until the time period has passed before filing.

What this Really Means

As a practical matter what does all this mean? In my opinion it means that you might not want to file a bankruptcy if you have run up a debt on any one account in an amount of more than 4 or5 thousand dollars in the past six months. If it’s much less than that, the creditor probably can’t afford to do an objection. If it’s much older than that, it’s might be too hard for the creditor to prove. This kind of recent debt runup doesn’t necessarily mean you should not file a bankruptcy. But it could be a good reason to delay the filing for a while.

Disclaimer

This post is for general information purposes only and is not legal advice. It does not create an attorney-client relationship. Consult the attorney or your choice about the details of your case.

 

Things to Avoid Before Bankruptcy: Item 1 – Repaying a Debt to a Close Friend or Relative

Protect your friends and relatives

By David J. Kelly, Minnesota Bankruptcy Lawyer

It has always seemed to me that most of the things you SHOULD NOT do before filing bankruptcy are things that in ordinary circumstances your mother would say that you SHOULD do. If you are thinking of filing a bankruptcy, it’s time to consult your lawyer and not your mother or friends or relatives.  The sooner you consult a lawyer the better.  The bankruptcy code is full of hidden traps and gotchas. 

This is the first in a series of seven blog posts about things to NOT do if you are considering filing a bankruptcy in Minnesota. This post discusses payment of a debt to an insider – usually that means a close friend or relative. It can also include a business partner or associate.

In a Chapter 7 bankruptcy amounts repaid within a year before the bankruptcy is filed on debt owing to an insider can be clawed back by the trustee. In Chapter 13 bankruptcy you have to pay extra money into your plan to cover what the trustee could have clawed back had it been a Chapter 7. Either way, this is something you want to avoid. There is a fix for the problem, but you might not like it: obtaining another loan from the person you repaid in an amount in excess of the amount you paid.

The last thing you want after your bankruptcy case is filed is for your mother or brother to receive a letter from the trustee demanding return of money you paid them.  You get the same result if you pay a debt owing to an insider by giving the insider a benefit indirectly.  Here’s a common example of how this can happen.  Let’s say you need to buy a car but you can’t get a loan to do so.  Your brother does a cash advance on his credit card and loans you the money to buy the car. Every month you make a payment on the credit card that is in your brother’s name.  In a Chapter 7 bankruptcy the trustee can go after your  brother to recover all the payments you made on that credit card within the year before filing.  In a Chapter 13 you may have to pay larger payments to cover for the amount you repaid in your brother’s name.

I always hate it when I learn that my client or potential client has just done something that is really going to make the case difficult.  The rule seems to be that they always do it just a few days before coming in to see me.  If only they had talked with me before doing that!

If this sounds complicated it is. If you are thinking of bankruptcy it is best if you consult a lawyer before you make any financial moves. I would be glad to discuss the details of your case. Call me at 952-544-6356.

Bankruptcy Attorneys Provide an Essential Service

By David J. Kelly, Minnesota Bankruptcy Lawyer


Bankruptcy attorneys are considered to be an essential service. While I have been taking plenty of precautions, such as asking everyone to wear a mask, I am still here and ready to serve. It usually takes several meetings between myself and my clients to properly prepare a case for filing – but many of those meetings can be done by Zoom or telephone or one of the other remote communication platforms. You don’t have to wait. I would be glad to start working with you now. To begin, call me for a free telephone consultation. 952-544-6356.

Covid-19 Update from National Association of Consumer Bankruptcy Attorneys

clorox lawyer

By David J. Kelly, Minnesota Bankruptcy Lawyer since 1976

Just received the following summary from the National Association of Consumer Bankruptcy Attorneys concerning bankruptcy provisions of the Coronavirus Aid, Relief and Economic Security Act” (CARES Act). Here’s what it did:

1. Amended the Small Business Reorganization Act of 2019 (SBRA) to increase the eligibility threshold for businesses filing under new subchapter V of chapter 11 of the U.S. Bankruptcy Code from $2,725,625 of debt to $7,500,000. The eligibility threshold will return to $2,725,625 after one year. Check out our SBRA Resource Page for more information.

2. Amended the definition of “income” in the Bankruptcy Code for chapters 7 and 13 to exclude coronavirus-related payments from the federal government from being treated as “income” for purposes of filing bankruptcy.

3. Clarified that the calculation of disposable income for purposes of confirming a chapter 13 plan shall not include coronavirus-related payments.

4. Explicitly permitted individuals and families currently in chapter 13 to seek payment plan modifications if they are experiencing a material financial hardship due to the coronavirus pandemic, including extending their payments for up to seven years after their initial plan payment was due.

I am still here during the Covid-19 Crisis. Lawyers are considered officers of the court. As long as the bankruptcy court is open, and it is, I have to be open too. Still, I am taking every precaution. Don’t be offended if I wipe off the pen you used or anything else you touched, or if I pull my chair back and keep my distance. Also, I am learning how to use Zoom. Already have been using Hangouts and Skype. I prefer Hangouts for virtual face to face; but one can still get a lot done by just meeting remotely by old fashioned telephone. I am limiting actual visits to my office as much as possible.

Just Updated my Blog Theme

Debt Relief, MN Bankruptcy

By David J. Kelly, Minnesota Bankruptcy Lawyer

I have grown weary of getting messages from Google that my site is not mobile friendly. I will admit that up until now I have had to squint a bit to read my blog posts. I was fearful that changing the theme of the blog would be a long and painful process, time consuming and confusing. I have found so far that it is just the opposite. The whole thing took less than an hour.

There are bound to be bugs, however, and if you notice anything that looks strange please let me know.

Best Way to Pay for a Bankruptcy is a Tax Refund

By David J. Kelly, Minnesota Bankruptcy Attorney

The Minnesota bankruptcy filing statistics are out for the month of March. Year over year, March of 2019 shows 70 fewer bankruptcy filings than there were in March of 2018. In March of 2018 there were 998 bankruptcy cases filed in Minnesota, but this year in March 2019 it was only 928. March has always been the month in which the greatest number of case are filed – in my opinion that’s because people have tax refund money they can use to pay their lawyers. Why is it down this year? My best guess is it”s those lower tax refunds everyone has been talking about. I see my clients having bigger pay checks because their withholding is less, but they are also having lower tax refunds. Since tax refunds are considered to be an asset, a lower refund can be a good thing once the bankruptcy case is filed.

Minnesota Bankruptcy Court Still Open at least Until January 25th

Minnesota Bankruptcy Court

By David J. Kelly, Minnesota Bankruptcy Lawyer

Yesterday I received an email from the Minnesota Bankruptcy Court stating in part as follows:

If there is a lapse in appropriations after January 25, the U.S. Bankruptcy Court for the District of Minnesota will likely be operating with reduced staff focused on processing filings that directly affect the protection of human life and property, as required by the Anti-Deficiency Act. The court is still in the process of determining which activities can and cannot be performed during a shutdown, and will provide ongoing guidance as these determinations are made.  

We anticipate that, during any shutdown:

CM/ECF will remain operational;

The BNC will continue to process and send notices in the ordinary course; and

PACER will remain operational and the PACER Service Center will provide ongoing support services.

In the coming days, we plan to set up an email box to which you can direct questions, concerns or comments about the shutdown.  We will send out the email address with any additional updates as these become available. 


I take this as meaning that for now I can continue with business as usual but that I better keep a close eye on things.

Hard to Pay Those Troubling Holiday Shopping Bills?

Are holiday debts catching up wit you?

By David J. Kelly, Minnesota Bankruptcy Attorney

Around this past Thanksgiving CNBC published a report about how an alarming number of shoppers are still paying off debt from Christmas of 2016.  A lot of the data in the report came from a source called NerdWallet. It seems that holiday-induced  spending and debt is a growing problem.   24% admitted to overspending for the holidays of 2016.  Among baby boomers, 64% went in debt to pay for Christmas.  For Gen-X it was 58% and for millennials it was 40%.

When it comes to not yet having paid off the 2016 debt, the millennials led with 24%. Gen-X came in at 16% and the boomers were at 8%.

The advice offered by CNBC to help avoid going into debt over the holidays again is threefold:

  1. Make a good budget and stick to it.
  2. Keep an eye out for sales; and
  3. Pay debt back.

My reaction to this advice is to say to myself “well that’s easy for them to say.”  Credit card debt has a way of sneaking up on a person. Not everyone is capable of paying their debt back.  Many are overwhelmed and the bills that come in after Christmas can be the straw that breaks the camel’s back.

If you are looking at your holiday bills and other debts in shock, perhaps it is time to consider another alternative.  Once unsecured debt totals more than half of your annual income, it is usually impossible to get it paid back.  For you a Chapter 7 or Chapter 13 bankruptcy might be a good idea.

Minneapolis Minnesota Bankruptcy Filings are Up 2.65%

Minneapolis Federal Courthouse, where Hennpin County Bankruptcy cases are filed

Minneapolis Minnesota bankruptcy filings are on the increase, both for Chapter 7 bankruptcies and Chapter 13 bankruptcies.

The monthly filing statistics from the Minnesota bankruptcy court show a year over year increase.  As of the end of October there was a 2.65 percent for the cases handled in Minneapolis.  The increase for the entire state is 2.18 percent.  St. Paul shows only a 1.62 percent increase, but Duluth has a 3.66 percent increase.  This is the first increase for the state of Minnesota since 2010, when there was an increase of 7.15% for the state.  The years 2011 through 2016 showed decreased numbers of filings.  An exception to this six year decline was Fergus Falls and Duluth.  Both of them had increased bankruptcy filings starting in 2016.  Bankruptcy filings of all types in Minnesota totaled 8,148 at the end of October this year.  The total a year ago at the end of October was 7,974.

I will admit that is not a very large increase, but I still believe this is news.  It is news because each of the prior six years showed a decline in bankruptcy filings in excess of 10 percent per year for this state.  After years of decline the number of people in Minnesota bankruptcies hit bottom and is now on the upswing.  I am finding that phone calls and emails to my office are on the upswing too.

Many people who really need to file bankruptcy have been just too poor to do it until now.  There’s a point where as the economy improves, bankruptcies will increase because of this pent up demand.  I believe that’s what we are seeing.  If you are feeling a need to call me, you are definitely not alone.  There’s no reason to feel embarrassed about it.

Named in Top 25 Minneapolis Bankruptcy Lawyers Second Year in a Row

Best 25 Bankruptcy Lawyers in Minneapolis 2017

In 2016 when I was first contacted by Expertise.com I was very skeptical, as evidenced by what I posted here at that time.  I have received all sorts of scam emails from one outfit or another which try to get attention by announcing that they are giving me some sort of award.  Often all they are trying to do is sell me a meaningless plaque to hang on my wall.  Sometimes they are offering to list me in some sort of Who’s Who book, for a fee of course.  Other times they are fishing for personal information such as a bank account number or a password.

Another reason for my skepticism is that after my typical Minnesota upbringing, I find it very hard to accept praise or gratitude of any kind.  My default response to anybody saying anything nice about me is to respond by saying it was no big deal or by minimizing it in some way.  When someone says “thank you” to me, instead of just saying “you’re welcome” I tend to launch into some long explanation as to why I don’t deserve to be thanked.  Having become aware of this, I have actually been practicing saying “you’re welcome,” and it’s not easy.

After passage of some time and after I’ve done some investigation, I have come to the conclusion that Expertise.com is legitimate.  They made a serious effort to take a look at the bankruptcy lawyers in the Minneapolis area and rate them based on reputation, credibility, experience, availability and professionalism.  To them I wish to say thank you and I’m honored.